Earnings Transcript for ETL.PA - Q1 Fiscal Year 2018

Executives: Rodolphe Belmer - CEO and Director

Analysts: Nick Dempsey - Barclays PLC Aleksander Peterc - Societe Generale Cross Asset Research Patrick Wellington - Morgan Stanley Eric Beaudet - Natixis S.A. Robert Berg - Berenberg Laurie Davison - Deutsche Bank Aegean Sami Kassab - Exane BNP Paribas Wilton Fry - RBC Capital Markets Giles Thorne - Jefferies LLC Paul Sidney - Crédit Suisse Aegean

Operator: Good day, and welcome to the Eutelsat Communications First Quarter 2017 through 2018 revenue presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Rodolphe Belmer. Please go ahead.

Rodolphe Belmer: Good evening, ladies and gentlemen, and thank you for joining us on this call where we will present our first quarter revenues. I am Rodolphe Belmer, CEO, and I'm joined today by Michel Azibert, Deputy CEO; and Sandrine Téran, CFO. Before looking at the numbers in detail, let's take a look at the key events of the quarter. First quarter revenues stand at €349 million, in line with our expectations. Key operational metrics were well oriented. On a sequential quarter-on-quarter basis, the fill rate improved while the backlog stabilized. And in Video, the level of HD penetration continued to increase. Staying on Video, contracts renewed on the quarter had positive outcomes, notably with Cyfrowy Polsat at HOTBIRD. And we took a further step to streamline distribution in MENA this time with the absorption of one of our main distributors in the region, NOORSAT. Positive news also in the Government Services since the outturn of the U.S. DoD Fall campaign was favorable with a renewal rate of almost 95%. One setback, the late availability of Al Yah 3 satellite carrying most of the capacity serving the rollout of Konnect Africa broadband service is confirmed and will push out revenues for this vertical. More on this later. So first quarter revenues amounted to €349 million versus €385 million in Q1 of last year. On a reported basis, this represents a decline of 9.3%. At constant currency and perimeter, which is the basis for our financial objectives, revenues declined by 6.7%, reflecting a €5 million currency effect related, of course, to the dollar and a €6 million perimeter effect related to Wins/DHI which was deconsolidated from end August last year and DSAT Cinema deconsolidated from end October. If we strip out other revenues which were, we will remind, exceptionally high in the first quarter of last year, notably due to the termination fees related to the take-back of capacity at HOTBIRD, revenues from the Core and Connectivity verticals declined by 1%. Let's take a look now at the Q1 performance by application. As usual, all comments are on a like-for-like basis. Starting with the Core businesses. Video, 65% of total revenues, recorded Q1 revenues of €223 million, down 0.8% versus last year and up by 0.7% on a quarter-on-quarter basis. Fixed Data, now 11% of group total, saw revenues of €37 million, down 11.7% year-on-year and 4.7% quarter-on-quarter. Government Services, 12% of revenues, saw revenues of €41 million, up 1.1% on a yearly basis and down 2% quarter-on-quarter. Turning to Connectivity. Fixed Broadband, 7% of revenues, stood at €22 million, a decline of 9.7% year-on-year and 3.5% quarter-on-quarter. Mobility, 5% of revenue, saw revenues of €19 million, up 33.3% versus a year ago and 5.1% sequentially. Finally, I've mentioned previously, other revenues stood at €7 million, broadly similar level to Q4 last year but circa €20 million less than a year ago. Let's have a look at each vertical in more detail. First, Video. Video Applications, with revenues of €223.3 million, were down by 0.8% year-on-year. Broadcast revenues were up 0.5% year-on-year if we exclude the carryforward effect of the termination of the TV d’Orange contract last year. Growth came from Russia at the 36-degree East and 56-degree East orbital positions and MENA at the 7/8 West and 7 East orbital positions. Not much change in Professional Video revenues, which continues to reflect ongoing difficult conditions. On a quarter-on-quarter basis, revenues grew by 0.7%. At September 30, 2017, the total number of channels on the Eutelsat fleet stood at 6,755, up 6.6% year-on-year. HD continued to rise, up 29% to 1,210 channels versus 940 a year earlier. HD penetration stood at 17.9%, up from 14.8% a year earlier. On the commercial front, a major contract was renewed on favorable terms on HOTBIRD with Polsat as well as a renewal with the distributor, Globecast. Let's take a closer look at trends on HOTBIRD. Channel count remained resilient. If we exclude the initial circumstances of the loss of TV d’Orange at the end of December, the lineup would have grown by circa around 15 channels or just over 1%. Year-on-year, the number of MPEG-4 channels rose by 9% to 544. This growth rate, like the past 2 quarters, was slower than the ramp-up in HD channels at plus 29% to 290, confirming the inflection identified during the course of the past year. Yet MPEG-4 remains considerably more advanced than HD with a penetration rate of 54% versus 29% for HD channels. Elsewhere, we announced a couple of weeks ago the acquisition of NOORSAT, the main distributor of capacity at our 7/8 West position and also at 25.5 neighborhood. This deal is in line with our strategy of streamlining distribution within selected core video demo groups where we can create value, for example, at HOTBIRD last year. It will enable us to increase our direct access to end customers, thereby facilitating the stimulation of HD takeup, the rollout of differentiated pricing policy and the upselling of incremental video services. The consideration is USD 75 million, debt-free and cash-free. The acquisition will add upwards of USD 15 million to consolidated revenues on an annualized basis after the elimination of the capacity leased my NOORSAT from Eutelsat. Its slightly diluted impact on our EBITDA margin will be absorbed within our existing objectives. Fixed Data. First quarter revenues for Fixed Data stood at €37.1 million, down 11.7% year-on-year, 11.7% year-on-year. Quarter-on-quarter revenues were down by 4.7%. They continue to reflect ongoing pricing pressure in all geographies even if we saw a slight sequential improvement in volume trends. Government Services revenues stood at €41.1 million, up 1.1% year-on-year, reflecting the carryover effect of the solid commercial for performance in fiscal year 2016-2017. Revenues were down 2% quarter-on-quarter, reflecting the absence of a positive one-off recorded in the fourth quarter of last year. The latest round of contract renewals with the U.S. Government in Fall 2017 was favorable with an estimated renewal rate of almost 95% composed of virtually stable volumes accompanied by slight declines in price. Fixed Broadband. Fixed Broadband revenues stood at €22.3 million, down 9.7% year-on-year. This decline mainly reflects the absence of a positive one-off recognized last year related to the phasing of payments by a specific customer. Indeed, the underlying trends in European broadband remained resilient with the lower subscriber numbers broadly compensated by a favorably oriented ARPU. However, as I said earlier, the other setback is the launch delay of Yahsat's Al Yah 3 satellite carrying more than 75% of the capacity leased for the African broadband business. After having been pushed back several times, it is definitively postponed to Q1 of calendar year 2018. Therefore, commercial services on this satellite are now expected in June 2018 at the earliest. It is more than 4 months later than our most recent expectations and a full 6 months versus our original assumptions. The attendant postponement of related commercial initiatives is also affecting revenue generation on the Al Yah 2 satellite. In consequence, the vast maturity of Konnect Africa revenues initially expected at around €15 million in fiscal year 2017-2018, will be pushed out to 2018-2019, by 1 year. Turning to Mobile Connectivity. Revenues stood at €18.6 million, up 33.3% year-on-year, reflecting the effect of the Taqnia contract signed last year as well as continued growth on wide beam capacity with customers including Gogo, Hunter and Panasonic. Revenues were up by 5.1% quarter-on-quarter. Fiscal year '17-'18 revenues will benefit from the entry into service of EUTELSAT 172B in November this year, where a part of the HTS payload for in-flight connectivity is presold to Panasonic. The full impact will be visible from Q3 onwards. Turning now to the backlog and fill rate. The backlog stood at €5.2 billion at September 30, 2017, versus €5.4 billion at the end of September 2016 and €5.2 billion at the end June 2017. The sequential stabilization of the backlog reflects Video renewals signed during the quarter, which offset natural consumption. The backlog was equivalent to 3.5x 2016-2017 revenues. Video Applications represented 86% of the backlog. With regards to the fill rate, the number of total operational 36 megahertz equivalent transponders stood at 1,374 at September 30, up by 47 units, compared with end September 2016, reflecting principally the entry to service of EUTELSAT 117 West B in January. As a result, the fill rate stood at 68.4% at end September 2017 versus 71.5% a year earlier, reflecting mainly the impact of this capacity -- this new capacity. And incremental 9 transponders have been sold since end June 2017. Let's turn now to the outlook. Starting with reminder of the priorities we set for fiscal year 2017-2018, with efforts directed at maximizing free cash flow generation with 2 main areas of focus. Revenues. With the exception of Fixed Broadband, the performance of the other verticals is on track. The outcomes of HOTBIRD renewals this quarter have been favorable. HD penetrations -- penetration continues to rise both at HOTBIRD and on the fleet as a whole. And the integration of NOORSAT will give us immense control over utilization of our capacity in the MENA region. Elsewhere, while the Fixed Data segment remains difficult, volume trends are showing some improvement. And Mobile Connectivity rose by 33% like-for-like in Q1 and will benefit from the entry into service of EUTELSAT 172B in the second quarter. Other items. We only report revenues at the Q1 stage, but of course, work is continuing behind the scene on all other elements affecting free cash flow, notably the LEAP cost-saving plan, notably working capital, notably CapEx utilization and debt reduction. I can confirm to you that all these actions are fully on track. Second, a quick reminder on the revenue path in 2017-'18, which, as we highlighted in July, is set to improve in the coming quarters. This remains true despite the absence of revenues from Konnect Africa. First, the comparison base will become gradually easier due to lower other revenues with the termination of the TV d’Orange contract on December 31, 2016 and easing comps in Fixed Data. Second, revenues will benefit from entry to service of EUTELSAT 172B from Q2 with the HTS payload partly presold to Panasonic and a full quarter impact from Q3 onwards. So let's turn now to the outlook. For the remainder of the year, revenues in our Core business and Mobility are on track. However, the late availability of the Al Yah 3 satellite payload will push out revenues in Fixed Broadband. In recognition of this delay, revenue expectations for fiscal year '17-'18 are mechanically adjusted from broadly stable to between minus 1% and minus 2%. This adjustment will not affect our ability to attain our other objectives, in particular the EBITDA margin and discretionary free cash flow growth, which are all reaffirmed for the current and for the future years. From fiscal year '18-'19 onwards, we continue to expect a return to slight revenue growth. The EBITDA margin at constant currency is still expected above 75% -- 76% for fiscal year '17-'18, rising to above 77% from fiscal year '18-'19 onwards. Discretionary free cash flow is expected at mid-single-digit CAGR between July 2017 and June 2020, with growth back-end loaded in the outer 2 years. And of course, our CapEx plans and our commitment to our investment-grade and deleveraging objectives are unchanged and as is our undertaking to serve a stable to progressive dividend. Thank you for your attention. And we are now ready, I expect, to take your questions.

Operator: [Operator Instructions]. Our first question is from Nick Dempsey from Barclays.

Nick Dempsey: First question, regarding Konnect Africa, do the conversations with resellers and other players in the market so far give you confidence that you actually will achieve the €15 million of revenue in the year to June '19 even though, obviously, the delay has pushed this out? And second question, within Video, please, can you remind us roughly how much of the base was Professional Video and the rough level of decline for that component and then the rough impact of the TV d’Orange contract? So I'm just trying to understand the clean growth in Video.

Rodolphe Belmer: Well, thank you, Nick, for those questions. Konnect Africa, we -- our view is that the revenues we expect from this initiative, which we disclosed a year ago, are unchanged but would be postponed by 1 year. We expect more than €15 million in year 1, but this one will be next year and not this year. Why are we confident that we can achieve those figures? We have had quite extensive and comprehensive conversations with distributors in Africa, which are strengthening our sentiments that those figures are achievable. And more than conversations, we had also some indicative commitments by our -- by distributors in Africa, and we have seen lots of excitement in the region on our initiative. The fact is that today, we have few capacity to sell to really generate and trigger the interest of distributors and to convince them to invest, whereas when we have the larger capacity coming from Al Yah 3, sorry, we will be able to convince distributors to commit due to marketing standings necessary to sustain the growth of that business. And that's the conversation we have had with them. Second question, the -- concerning the Professional Video, the Professional Video is a minority that's part of the total Video revenue. It's around 10% of the total Video segment. It has been declining. I think we don't fully disclose the magnitude of the decline, but the fact is that in this segment, in the past, the behavior and the dynamics have been quite comparable to the Fixed Data segment overall. For the impact of TV d’Orange, I'm not sure I remember what's the figure and if we disclosed it. I think it was around €2.5 million per quarter, sorry. Somebody's helping me, as you can all understand.

Nick Dempsey: And that runs out, that's still affecting you in Q2, but they're not?

Rodolphe Belmer: Yes, exactly.

Operator: And our next question comes from Aleksander Peterc with Societe Generale.

Aleksander Peterc: I'd just like to come back on the Konnect Africa. I seem to remember that you're leasing 10 gig on Yahsat, of which 1 quarter was in Al Yah 2 and then 3 quarters under 3. So is still the 3 being pushed out? Or is the entire thing being pushed out? I'm not quite enough clear here on the numbers. And then a quick follow-up, if I may. Have you got anything new to share regarding ViaSat-3, how that is progressing? Have you agreed anything new on the financial terms of your venture with your partner?

Rodolphe Belmer: Well, thank you, Aleksander. On Konnect Africa, actually, we leased 2 pieces of payload from our partners of ViaSat. In total, it's a bit more than 30 gigabit per second. The vast majority of it was -- more than 75% is being brought by Al Yah 3 and the rest is being brought by Al Yah 2, which is also known as Yahsat 1B. The fact is that Al Yah 3 launch has been postponed regularly and is now set to be launched in Q1 2018 with capacity coming into commercial service only in June 2018, which means -- which makes evidence that we're not going to generate revenues from this capacity. What we see now and what we express now is that this postponement of Al Yah 3 capacity actually postpones the very, very vast majority of the revenues we have expected from Konnect Africa. Why? Because the Al Yah 3 capacity is not available now. And second, because Al Yah 2 capacity is too small to really trigger the interest of distributors at the moment, meaning that everything has been postponed because Al Yah 3 has been postponed. That's, in essence, in a nutshell, what's happening, meaning that the revenues we expected from Konnect Africa will be postponed in fiscal year '19 and we expect around -- a bit more than €15 million from this initiative during the course of next fiscal year and almost nothing this fiscal year. On ViaSat-3 -- actually, there are 2 elements to your question. There is the joint venture with ViaSat, and there is the procurement of ViaSat-3 satellite, which are 2 distinct ends. Joint venture with ViaSat-3, we signed the joint venture almost a year ago, 7 or 8 months ago. It's now settled in Switzerland, in Lausanne, and the joint venture is up and running and are -- they are mostly starting to develop retail plans to push the distribution to homes in Europe and notably in parts of Europe where we have been unsuccessful in the past with our KA-SAT operations. Second, there is the ViaSat-3 procurement negotiation which is underway. As we said previously, we expect favorable -- or positive and favorable -- a positive outcome of this negotiation by the end of this fiscal year, around December. That's the common objectives we have set to ourselves with our partner, ViaSat. The negotiation is underway, and I can tell you that we are feeling confident at the moment where we're sticking.

Operator: [Operator Instructions]. We will take our next question from Patrick Wellington from Morgan Stanley.

Patrick Wellington: Yes, I've got a couple of questions. Could you talk a bit about what else is happening in fixed broadband? Because the growth rates slowed down all the way through FY '17. It was 5% in Q4 and it's now negative. So what's happening with the old business, if you like, pre-broadband Africa there? And secondly, Mobility growth is, I think, a bit stronger than we were expecting this quarter. Can you talk a bit about how that builds up through the years as those new contracts come on board? And maybe some sort of indication of how much EUTELSAT 172B might contribute during the quarter this year. And then just to return to the ViaSat-3 renegotiation, it has been going on for quite a long time. The heads of agreement was signed quite a long time ago. Is there unity of intention at Eutelsat that, that deal should be signed? Or are there alternatives to ViaSat in terms of your growth in mobility, maybe signing further big deals with the likes of Panasonic?

Rodolphe Belmer: Okay. Thank you, Patrick, for all those questions. More color on our broadband revenues. In Q1, as I told, the contribution of the African broadband initiative is extremely low. When I say extremely, I mean extremely for the reasons I've explained previously. Our Russian business is taking off but still represents modest revenues, we must admit. And the European broadband business is more or less stable, flattish with two diversifying factors. First, the number of subscriber, which is in decline, affecting mostly the congestion of our beams in the regions where there is lots of demand. And on the positive side, we have been able to increase ARPU to almost compensate for this reduction in number of subs. The fact is that last year, we had positive one-off elements. We said last year that we had positive one-off related to the phasing of payments by a specific customer, which means that we have a customer for which we recognize revenue when they pay us because it's a difficult customer and we adapt last year, which had sort of a basis effect. The question on Mobility, Mobility is growing quite significantly, 33.3% year-on-year. And even the sequential growth is quite significant, reflecting the significant progress we have made in this segment. It's going to continue to grow during the course of this fiscal year, notably -- but not only because of the launch of 172B, which will bring more revenue but will be coming from the Panasonic, to whom we sold part of the HTS payload on this 172B satellite. We will start to recognize those revenues when the satellite enters into service, which is during the month of November, meaning that it will impact positively, partly Q2 and entirely from Q3. And you had a question also on ViaSat-3, which I'm not sure I fully understand. We have made it clear that our strategy is to partner with ViaSat in Europe. We signed with them a joint venture. Our teams have merged, and they are now working together to develop concrete execution of plans to -- overall and to boost our revenues in the eastern part of Europe. That is now the procurement of ViaSat-3. It's true that it's long. It takes a long time. This is a very complex negotiation. We had very tough partners to negotiate with, as I said in the past already. But we intend to sign and to end up with a positive conclusion. I think that on both part, the intention is very clear and exclusive. And at Eutelsat, we speak with one voice. There is no lack of unity. And you also alluded to the fact that we should -- we could have different views because we want to serve Panasonic on other big contracts. I must state that we are partnering with ViaSat, but it doesn't mean that we are exclusively working with ViaSat. Our -- the main purpose of our joint venture with ViaSat is to develop the consumer business in Europe. We are willing to work with them in Mobility, of course, because ViaSat-3 will be used by the ViaSat teams to push their Mobility segment in Europe, true. It doesn't mean that Eutelsat is going to restrict its relationship to ViaSat only and to work exclusively with ViaSat formally. The answer is no. We continue to have extremely favorable and positive and fruitful relationship with Panasonic and with Gogo and with the other integrators in the aero mobility segment. We have an entire fleet. We have different satellites, different HTS fellows that are used by different aggregators with different strategies as ViaSat, meaning that we don't have to choose in this area between ViaSat and the others. But we serve all the clients and we serve all the partners.

Operator: And our next question will be from Eric Beaudet from Natixis.

Eric Beaudet: I have three, if I may. The first one is on your comment, the rationalization of your 7/8 degree Video position following the NOORSAT acquisition. When you mentioned rationalization, I hear what you did on the HOTBIRD last year, meaning that you took back capacity in order to resell it as more expensive, and therefore, saw your video revenues decline. I was wondering if there's a risk of seeing a decline in revenues from that rationalization? My second question regards Fixed Broadband. I understand some of the beams on Western Europe are full and hamper you from increasing customers. But why are you actually losing clients? I have a hard time understanding that. Especially if the beams are full, it should mean that there is demand. And my third question is again on Konnect Africa. You mentioned earlier in the call that overall, the project had a 6-month delay on your initial objective but that your €15 million of sales target was pushed back by 12 months. Does that mean that the actual ramp-up is slower than you thought? Or it's just a mispronunciation from your part? And then you also mentioned that you had at least 10 gigabits -- or 25% of 10 gig on Al Yah 2. I was wondering if you still have the cost associated with that even though you have not started selling the capacity.

Rodolphe Belmer: Thank you, Eric, for all those questions, which are 4, I think, not 3. Maybe I don't pronounce well but I count very well, if you can believe me. Well, all jokes aside, your first question is an excellent question. Rationalization of 7/8 West. It was a mispronunciation. What are we going to do on 7/8 West, what we had to do on orders and we're moving to third 7/8 West, why. Because there's lots of demand for this capacity immediately, so we are growing at 7/8 West. And demand is growing and number of channels is growing. And also, HD takeup is growing. Why have we chosen to absorb NOORSAT? That's because we want to have more grip on our distribution strategy to make sure we can put in place commercial strategies aiming at creating more value for us, I mean, pricing strategy, HD rollout strategy and also developing incremental and selling incremental services to our end customers, which are the broadcasters. And to be able to have this honest approach to be able to create more value, we need to have a more direct relationship with our clients at our key hotspots. That's what we wanted to do. And the parallel we are making between HOTBIRD and 7/8 West is because those 2 positions, those 2 neighborhoods are our 2 key orbital positions on which we believe even though we have sold most of our capacity, we can generate more value if we have more value-creating commercial strategy. And the idea of rationalizing HOTBIRD was not only to stop the possibility of a vicious cycle in price but also to undertake more value-creating commercial strategy. And that's also the same approach that we are having with the absorption of NOORSAT at 7/8 West. And that's one of the reasons why we say that Video will be slightly -- our Video revenues will be slightly growing. That's also because we are able to have this more positive, favorable commercial strategy at our key orbital positions. Fixed Broadband, you have questions concerning the discrepancy. Well, the apparent discrepancy is in the fact that these are full and we are losing clients. The reason is that our clients, as every client in the broadband world, they tend to use more and more data. And since they use more and more data, we are able to serve less and less clients. That's the dynamic that you can see for all the satellite base, the broadband operators, and that's exactly that same sentiment that is happening in the U.S. with our colleagues of ViaSat or [indiscernible]. That's the sort of typical phenomenon. And what we try to do is to mitigate this inevitable decline in number of subscribers, as [indiscernible] should be, by increasing ARPU and by also positive yield strategy where the objective is to focus on clients which generate the highest margin for us, less consumption, high revenues -- higher revenues. Konnect Africa, well, I think I need to express myself better than I did. We had planned, and we disclosed that more than a year ago, €15 million revenue from Konnect Africa this fiscal year. Because Al Yah 3 enters into service only in June 2018, which is the very last month of our fiscal year, the revenues from this initiative are postponed to fiscal year 2019. And concerning the cost of Al Yah 2, we are actually supporting a very -- this cost, which is a small part of the cost of capacity. But it gives me the occasion to say that because we rely that Al Yah 3 will be postponed, we have been able to already undertake some rationalization on reduction of our OpEx in Africa to make sure that we adjust our OpEx ramp-up to the ramp-up of our revenues, meaning that we have been able to reduce already the OpEx associated with our Konnect Africa initiative, meaning that the impact on fiscal year '18, this fiscal year, will be lower than anticipated even though we have to still pay for the capacity of Al Yah 2.

Operator: [Operator Instructions]. We will take our next question from Robert Berg from Berenberg.

Robert Berg: A couple of questions for me. And the first is a follow-up on the answer to your -- the previous question around NOORSAT and that strategy. And the question is that you recently bought this company to get closer to your customers, help drive HD rollout, better pricing. And you took the hit, obviously, at HOTBIRD for similar reasons, to add value and top line growth going forward. Are there any other regions where you see that you're looking at doing this to drive HD adoption and get better pricing? You mentioned just before there's a strategy you might need to do at all your key hotspots. I'm just trying to look at how much capital or cost you might choose to allocate to this strategy for improving future top line growth? The second question, it appears that one-offs are actually commonly occurring across your revenue lines. And this more of a housekeeping question really. This quarter looks, at face value, to be a pretty clean quarter. Just wondering if there's any positive or negative one-offs in the Q1 numbers that we should be aware of.

Rodolphe Belmer: Well, thank you, Robert. On our strategy to acquire distributors on other hotspots to follow and to -- or to duplicate the strategy we have had -- we are having in MENA, for the moment, we are not seeing on the -- we have no plan. Nothing is planned. And I must say that the situation at 7/8 West is very specific. Understand that NOORSAT, well, first, it's a very, very strong hotspot with lots of area for improvements because HD penetration is very low today because we think we don't really exercise our pricing power as much as we could and -- et cetera. The fact is that in this region, first, there is sort of motivation to do that. And second, NOORSAT was a sort of specific target because first, it sold, let's say, only Eutelsat capacity. And second, it is really -- used to be really leading yet very much leading market share in distributing our capacity in the region, meaning that we don't anticipate any sort of retaliation or negative impact on us by this absorption. And the way we -- in this age, our distribution strategy is, where does it make sense to get closer to our clients, meaning where can we create more value in terms of price, in terms of HD penetration, in terms of number of channel developments but also where do we take risk of triggering some satisfaction or retaliation from other distributors. We should balance the opportunity and the risk. And that's what we do every day. Well, there is [indiscernible] driven by the sort of [indiscernible] to maximize the value creation and minimize the risk. And that's why we have a full plan to absorb all the distributors on all of our hotspots. Is it a clean quarter? Well, other quarters tend to be. We hope to be clean as well. And in this quarter, there is no, seriously, no one-off, specific one-off to report.

Operator: And our next question is from Laurie Davison from Deutsche Bank.

Laurie Davison: You stated your original expectations for Konnect Africa were €15 million, yet you're downgrading revenue guidance from broadly stable to 1% to 2% decline. So how can you reckon €15 million is a 1% decline? So what else is going on there? Second question, of the 5 transponders you took back of resellers for HOTBIRD, how many have you successfully resold? And can you confirm the pricing is higher on those resells if you've done it? And then lastly, on Fixed Data, what level of ongoing revenue decline should we now be expecting for '18 and '19? Having Telesat talking about higher pressures than they've been expecting, are those pricing pressures you cited turning out to be even more intense then you had originally planned?

Rodolphe Belmer: Well, thank you, Laurie. On your first question, €15 million represented good points of growth, as you've noted very well. Our previous guidance was broadly flat, and it's now minus -- between minus 1% and minus 2%. And mostly, well, this 1 percentage point -- this good 1 percentage point adjustment drives in the bracket between minus 2% and minus 1%. On the -- in terms of HOTBIRD, we have been able to sell part of the capacity we had taken back. The fact is that it's not still visible in the revenues of HOTBIRD even though those revenues are well oriented because we are using this capacity as a promotional vehicle to prove for HD reduction. The contracts are signed but that's with a free-of-charge period, which weighs on the revenue of those transponders. And the visible part of this strategy can be seen in the very significant acceleration of HD penetration at HOTBIRD. As we said, the number of HD channels has grown by 29% year-on-year, which is pretty impressive and which is an extremely good sign for the future. And it also can be seen by some of you in the consumption of megabits at HOTBIRD, which is also well oriented. Third question, Fixed Data. It's true that Fixed Data this quarter is in a decline by 11.7% year-on-year, which is mostly driven by price, which is in decline quite significantly, by almost 10%, which means that we continue to experience a very difficult pricing condition in this application. This offer, I must admit that's what we had in mind a year ago, and we expect that the negative trend in Fixed Data is going to continue in the next few years. We have been very much bearish and more bearish than our peers in this segment in the past quarters and in the past 2 years, and we continue to be not very positive and to be -- to have a better view. The fact is that it gives us a very small portion of our revenues today and the impact of the decline in this segment is less and less visible on our total group top line revenue.

Laurie Davison: Okay, sorry, just to come back, on the HOTBIRD purge, have you actually sold -- have any of the contracts come out of that free-of-charge period yet? Or are they all still in the free-of-charge period? So have you actually got -- secured revenue uplift from any of those purged transponders?

Rodolphe Belmer: Well, we are out of the free-of-charge period for some contracts, and what I can tell you is that those free-of-charge contracts are associated with regular contract. That's a free-of-charge period within the full regular contract. And those contracts are priced with the new pricing strategy we put in place a year ago or even -- or 18 months ago on HOTBIRD, which will -- it says it's a new rate card that we put in place, the price per megabit, which is -- which will help us grow progressively the price per transponder on HOTBIRD. And all the new contracts we sign now are based on this new price rate card.

Operator: And our next question is coming from Sami Kassab from Exane.

Sami Kassab: I have also 2 or 3 questions, please. The first one, am I understanding you properly when I say that you are increasing your revenue guidance for fiscal '19? Again, we're talking about deferrals of €15 million. It didn't come across in your written guidance as such, but if you don't want to comment on guidance, are you encouraging us to increase our revenue growth number for fiscal '19? Or are you arguing '19 is still a long way off, so who knows what happens? And secondly, how far advanced are you in selling the remainder of the HTS capacity on 172B? Could we expect any announcement on that? And lastly, the local press reported growth plans you may have in the Ukraine. Can you comment on any of those plans in that country, please?

Rodolphe Belmer: Thank you, Sami. For fiscal year '19, we have maintained our guidance of revenues, which is a slight growth. Why? Because, well, as you can calculate, we said that we would postpone €15 million revenues for fiscal year '18 to fiscal year '19. Our reasoning is that we should add 1 percentage point growth, which is the growth contributed by €15 million to our fiscal '19 revenues. Another way to say this is that we have expected in our previous plan an additional €15 million growth in this -- from this broadband for Africa initiative. I don't know if I've made myself clear, but the net result and the clear answer in essence is that we are -- we maintain our revenue guidance for next fiscal year. Even if we add this €15 million, it doesn't change the profile for next fiscal year because Konnect Africa was also supposed in our previous guidance, supposed to grow in fiscal year '19 by allowing, you can guess, the same amount. Maybe it's clearer this way. HTS stood at -- part of the HTS capacity of around 40% isn't sold. We are undertaking efforts to sell this HTS capacity. We have nothing to announce at the moment, but hopefully, this announcement will come sooner or later. Ukraine, well, I can see that you see all the details for our business. We are actually trying to develop a pay TV position in Ukraine, but still very, very beginning. But we are making some progress in this country.

Operator: And our next question is coming from Wilton Fry from Royal Bank of Canada.

Wilton Fry: A couple of questions, please. Firstly, you're going [indiscernible] to drive HD take-up, offering price discounts on HOTBIRD and obviously the acquisition of NOORSAT most recently. HD is now 18% free channels. You've been offering it for 12 years. Why is take-up so poor? Is it the client don't actually want it? Secondly, what proportion of channels on HOTBIRD are on the new rate card? What's the percentage differential on the typical channel between the rate card, the new and the old rate card?

Rodolphe Belmer: Well, on HD take-up, it's true that the total penetration of HD on our fleet comes at 18% only. The negative way to look at that is that it's slow. There are 2 positive ways. That is growing very fast, 30% year-on-year, meaning that our efforts do pay off and are showing that our sales organization has a very strong impact. And second, we have lots of room to still grow. 18% is low. And we're seeing that our objective should be around 50%, meaning that we have lots of room to grow and to catch up with our competitors. It means that -- the way we see it is that at Eutelsat, we are in a position, which is a bit unique, in which all the bad news we are taking in, in first instance and the good news are coming now. Why? Because MPEG-4 was rolled out first across our fleet. We have almost 16% or bigger than that percent of channels on our fleet which are in MPEG-4, meaning with an unfavorable compression standards. And we have only 18% of channels which are in HD, meaning that we are going now to grow more in HD than in MPEG-4. That's the inflation -- inflection point we are referring to, and that's visible in our quarterly publication. MPEG-4 has grown by a bit less than 10% and HD has grown by around 30%, which means that we have much, much more capacity consumption that we reduced capacity consumption because of compression. That's the positive way to look at it. It should fuel the growth rate in demand in volume in the next few years for our Video segments. Well, the new pricing rate card, I'm not going to disclose that because even though we have a rate card, there are some negotiations and bilateral negotiation every time with clients. But the idea is that we use this new rate card notably through the adoption of DVB-S2. DVB-S2 gives us much more megabit per megahertz, and we tend to share the productivity gain with our clients, meaning that we take more than our fair share of the productivity gain. It means that we should -- you should reflect that on the price of transponders.

Wilton Fry: Should I assume then from your answer and your comments about the rate card that you're paying -- that a client would pay 2.5x the price for the HD channel as they do for the standard definition channel based on the bit rate? Or do you offer the HD channel at a similar price as the SD channel?

Rodolphe Belmer: No, no, no, it's more expensive.

Wilton Fry: 2.5x? So that's typical...

Rodolphe Belmer: I don't want to disclose any of our prices because it's different orbital position by orbital position. But the order of magnitude is not ungrounded.

Wilton Fry: Could I rephrase the question? As a client, you just pay for the bit? So you should, therefore, automatically pay 2.5x for an HD to what you would do for a standard definition, would that be fair?

Rodolphe Belmer: It is correct. That's why I said that it's not -- well, your order of magnitude is not completely absurd.

Operator: And we'll go to our next question from Giles Thorn from Jefferies.

Giles Thorne: I've only got one question left. I'm sure everyone would be happy to hear. It's back on NOORSAT. In an interview, management of NOORSAT have been clear that Ku-band spectrum for DTH in the region is now fully utilized. So just coming back to the rationale for the acquisition, is this also due to a maturing of the Video opportunity in the Middle East? So you could vertically integrate to capture more of the value chain in the next growth vertical? It's a fairly cynical view of the world, but yes, it will be interesting to hear your comments.

Rodolphe Belmer: Well, I wouldn't call that a cynical view on the world. The fact is that it's true that our 7/8 West position is pretty much -- the fill rate is pretty high. It's not 100% but it's pretty high. And a way for us to continue to grow when the fill rate is very high is to increase price and to sell additional service to our clients, like, for instance, small beam. And for that, we need to have more direct access. We think we need to have more direct access to our end customers and to rationalize, that's the word we use, the word we use, the distribution. We don't perceive that as a cynical way. We perceive that as a way to maximize our opportunity to grow even though growth in volume is flattening.

Giles Thorne: Is there a way you could get hold of more spectrum? Have you considered M&A as a source -- as a means of getting more spectrum to keep fueling that business?

Rodolphe Belmer: Well, I don't want to comment specifically on some specific situations. At 7/8 West, we control the majority of the spectrum, but the rest is in the hands of our partners, our good partners of Nilesat, the Egyptian state hold operator which controls a portion -- a minority portion of the spectrum. What I can tell you is that in my view, it's absolutely clear that the state of Egypt has no intention whatsoever to sell part of its spectrum.

Operator: We'll go to our next question from Paul Sidney from Credit Suisse.

Paul Sidney: Apologies, I did miss some of the call, so apologies if you've already answered these questions. But I just have a couple of follow-up questions on the Yahsat Al Yah 3 satellite. Firstly, what's the actual reason for the delay? I haven't really heard why it's been delayed. And what gives you confidence that actually it will launch in early 2018? And just secondly, am I right in thinking that there's no margin impact from the expected lower revenues just because there's obviously variable cost element to the Al Yah 3 capacity?

Rodolphe Belmer: Well, thank you, Paul. What's the reason for Al Yah 3 delay? Actually, it's not in our premise, I would say, to comment on that. This satellite is not ours. It's Yahsat's Al Yah satellite. But our understanding is that, first, the manufacturing of the satellite took more time than anticipated. And second, they had difficulty to find the launch slot with Al Yah. Are we certain the launch is going to take place in Q1 2018? Well, we had communicated, well, very lately, a firm date of launch. Are we 100% certain it's going to -- the launch is going to take place at this date? Well, we are never certain in this industry, and that's why we say today that we expect the launch during the course of Q1. On the margin impact of the loss of revenues, it's not a loss. It's a postponement of revenue of Al Yah 3 for our Konnect Africa initiative. It's true that we took some decisions to mitigate the impact by reducing OpEx that we started to -- that we had started to commit in Africa. And second, we are using some headroom in our guidance to absorb the negative impact on revenues. Those 2 elements.

Operator: I would like to turn the conference back over to our speakers for any closing remarks.

Rodolphe Belmer: No closing remarks. Thanks to all for your attention, and see you at the latest report. Have a good evening.

Operator: That concludes today's conference. Thank you for your participation. You may now disconnect.